Quarterly Investment Outlook – Strawberry Invest

Oct


2016

Quarterly Investment Outlook – Strawberry Invest

 

While there is a lot happening in world politics our overall view of investment markets when looking at medium to long term investment outlook is that there are no major concerns. Short term volatility derived from up coming geopolitical events shouldn’t be cause for concern in the long term.

 

UK Markets:

 

UK Sterling Volatility
  • UK equities: well supported and despite the fall in exchange rates are now some 10% up since the referendum. This is highlighted as the FTSE 100 breaks 7000pts while sterling fell to 31 year low against the dollar.
  • Fixed Interest: Index Linked gilts are in negative yield up to 2% therefore holding them will destroy value.
  • Looking at shorter term duration bonds will potentially protect from the risk of fixed interest volatility.
  • The Bank of England are likely to reduce rates again this year to near zero, this is likely to be aided by government fiscal policy as monetary policy does not have too many remaining options.
  • Sterling is not likely to recover in the short to medium term. This has been recently reinforced with its 31yr lows as it reels on the possibility of a ‘hard Brexit’.

 

US Markets:

 

US Federal Reserve
  • The upcoming US election is likely to increase volatility across all markets and there is likely to be a short term sell off if Trump wins although there are currently no long term risks foreseen.
  • Where a potential Trump presidency has caused concern is in Emerging Markets, if Trump is true on his rhetoric towards trade it could damage imports and exports with emerging economies.
  • There is likely to be a US interest rate in December which has now been mainly priced in the market followed by two or three rises next year.
  • Unemployment in the US has remained steady, with the economy consistently adding on average 182,000 new jobs a month. This steady growth with apply upward pressure on wages, draw Americans in to the workforce and keep unemployment in check.

 

China:

 

Chinese Gambling Economy consumers
  • China is seen as the biggest risk to the global markets and economy with concerns over the current levels of domestic debt influencing the investment outlook. Although the state would likely intervene if problems arose as they pretty much own the whole banking system.
  • Grow of the world’s second largest economy looks set to continue slowing, with private projections set at 5% for 2016. Yet, it should be remembered this still amounts for considerable growth for the worlds second largest economy and one that has grown by 5 times in the last 10 years.

 

Oil:

 

OPEC oil and gas
  • Oil is viewed as currently having slightly higher risk on the downside as opposed to the upside when considering its investment outlook.
  • While OPEC has agreed to cut supply by between 250,000 to 750,000 bpd, this was overshadowed with Russia announcing record production in the same week.

 

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